Nowadays, it seems that all anybody wants to discuss is the housing market. Once you buy your first home, what’s next? And how are all these investors offering cash? Love it or hate it, real estate investing is an extremely hot topic with many profiting.
After all, more people are investing than ever before. Not only that, but investor demographics are changing.
With the storm of “meme stocks” as evidence, the presence of younger, less-experienced investors is undeniable. This demographic of investors occupies a large portion of the market, contributing to the housing market trending on social media.
However, being a landlord isn’t something that’s taught in school. Sometimes, it’s one of those things that investors learn as they go. If they’re lucky, they learn the best tips from experts and mentors in the field.
Here are some tips to help you succeed as a property investor.
You don’t have to jump right into buying and flipping properties.
REITs, or real estate investment trusts, operate and are traded like any other stock. Investors pool their money to buy a share of commercial real estate (like this killer high rise in Miami) and then earn income from the dividends, or a portion of the company’s earnings. Remember, when you get paid in dividends, you pay income tax on that money.
The three types of REITS:
Equity REITs: These are trusts (corporations or associations) that invest in properties like apartments, office buildings, shopping malls, and hotels. Revenue is made through rent.
Mortgage REITs: These are investments in residential and commercial mortgages that loan money for mortgages. They may also purchase existing mortgages or mortgaged-based securities (MBS), which are basically like bonds, made up of home loans bought from issuing banks. Psst: If this sounds all-too-familiar, that’s because it is. MBS is a type of asset-backed security that was the leading man in the 2007-2008 mortgage crisis.
Hybrid REITs: Simply put, these are a combo of both equity and mortgage REITs.
Why is this helpful to you?
Well, REITs help diversify your long-term portfolio. Remember, it’s all in the long game. In their traditional stock-like nature, REITs are highly liquid (you can get in and out quickly) and pretty flexible.
Real Estate Funds
This type of mutual fund (a portfolio of stocks, bonds, and other securities) primarily focuses on investing in securities offered by public real estate companies. They also invest in REITs. These investments give you the same professional portfolio management support.
The majority of these funds are invested in commercial and corporate properties. Some also include investments in land, apartment complexes, and agricultural space. Since these don’t trade, they’re a lot less liquid. Their main aim is appreciation (or the rise in the value of securities in the portfolio).
Why is this helpful to you? While REITs are the path to follow if you’re looking for liquidity and have shorter-term investment goals, Real Estate Funds are appealing when you want to play the long game and watch your investment appreciate over time.
Okay, so the previous two are traditional classes of real estate investments. But, there’s also a new form of REIT investing called crowdfunding real estate investment.
Crowdfunding real estate is probably exactly what you think it is. In 2016, the Title III clause of the 2012 Jumpstart Our Business Startups (JOBS) Act was implemented for crowdfunding. This clause allows non-accredited investors of any size to pool their money together to buy multi-family units, commercial properties, or bundles of single-family homes.
Some platforms like RealCrowd or CrowdStreet use the same ‘crowdfunding’ method but require you to be an accredited investor (meaning you net 1 million or rake in at least $200,000 each year). The minimum ‘buy-in’ for a platform like RealCrowd is around $25,000.
Why is this helpful to you? There are a few new options to allow you to enter into real estate crowdfunding platforms for much lower minimums without any accreditation.
But you want to be a landlord and get into real estate investment
Okay, what if you’ve come into some money and want a more liquid, passive income play? If that’s the case, you might think about cutting out the platforms above and finding a property to purchase and rent.
Here are some things to consider before becoming a landlord
While many assume that investing in real estate is inherently low-risk or safe, this is not always the case. Many still remember the massive losses incurred in the 2008/2009 financial crisis known as the Great Recession. This event is an example of how real estate is not inherently safe.
The ever-looming possibility of crisis is why wise real estate investors are aware that every investment has the potential to incur a loss. This risk must be considered every step of the way.
When considering a property for investment, it’s essential to factor in the potential of loss versus the potential for returns at every turn- during the transaction, renovation, and maintenance. When expense or payment is in play, always assess the possibility of risk.
Having A Plan
In real estate and beyond, planning is a critical factor in success. Many will tell you that simply visualizing success can help realize it.
For real estate, however, it’s essential to have definite plans about what you will do and when. The first time you purchase a property will often be the most difficult, but it’s also the most learning-conducive. During this first investment, you realize it’s important to have contingencies for when unexpected things happen, both in the market as a whole and with your investment. Investing in real estate differs from simply buying and holding stocks on the stock market or trading crypto online.
Integrate business planning into your investment practices so that the path to achieving what you want is clearly defined. Make the plan as detailed as possible and document as much as possible. This will help in the long term when you look back to try and figure out what works and what doesn’t.
Networking is a key aspect of real estate. Many realtors, for example, are highly engaged in their communities because having a market niche is crucial for securing transactions in real estate.
An extensive understanding of the area means being familiar with its various players, like politicians, business people, or other real estate actors (investors, owners, managers, etc.). This isn’t to say that you should be walking around like a character from House of Cards or Game of Thrones, but you should be prepared to meet people, interact with them, and build relationships.
Networking is arguably the best way to grow your real estate investment portfolio because it will make you privy to opportunities that are not broadcasted through the airwaves via Zillow or its many contemporaries. Many real estate opportunities, especially large ones, are performed by word-of-mouth between parties with pre-existing relationships or mutual acquaintances.
Be comfortable and familiar with referring people. It doesn’t matter what it’s about or who it’s for–if you can connect people to help each other and solve problems, your investment opportunities will ultimately be better off. Additionally, you’ll find that your current real estate investments will be easier to manage as your connections grow, and people become more familiar with working with you.
Being a landlord often involves doing many things yourself, but there will always be times when there is no other choice but to hire an expert. It is crucial to have reliable plumbing, electricity, and structures in your investment property, be they residential, industrial, or commercial. One way to help maximize your ability to maintain the proper standards is to have a solid network of skilled tradespeople who can help you.
Similarly, integrity is necessary for real estate investment practices. While many real estate investors have, in fact, benefitted from being dishonest or insincere in their practices, this is always discouraged behavior. Real estate is a fundamental aspect of our everyday society, which includes our economic markets. Crises such as 2008 and 2009 become more likely when bad actors make waves, ruining the industry for everyone.
On a less systemic level, there are many ways by which you can be a real estate investor with integrity. The bottom line boils down to the Golden Rule: treat others as you’d have them treat you. If you are renting property to a young family, treat them as you’d want another landlord to treat your family. If you are renting commercially to a small business, engage with that business as you’d have another engage with yours. There are many rules in real estate, but there’s also a lot of room to make it your own. Do this in a way that builds positive relationships, and you’ll have a less stressful experience as a landlord.
With the variety of investment forms (plus property types), it’s easy to become distracted and derailed. As important as it is to have a plan, it’s almost more important to adhere to your plans. You may have difficulty staying afloat in the market if you try to seize every opportunity.
Create an investing niche
Having a “niche” is a great way to stay focused. Become familiar with one type of rental property, such as single-family homes. This will help you grow your portfolio and ultimately achieve whatever goals you defined in your business plan. However, growth isn’t the only reason it’s important to stay focused. Choosing a niche for investing and managing property helps you streamline your operations. It can also help minimize the difficulties of a varied real estate portfolio. Can you imagine the complexity of keeping single-family homes, apartments, commercial spaces, and industrial spaces afloat all at once? That’s why very few individual real estate investors do it.
Hone in on your niche and become an expert in it.
Once you’ve built your portfolio to the point where you can comfortably hire help, such as a qualified property manager, it may be time to pivot into a new real estate sector.
Managing your property: know when to contract help.
Being a landlord requires more than digital savvy and the ability to create informative content for TikTok and Instagram. Many digital approaches and software exist to help outsource and streamline tasks associated with managing property. However, this doesn’t change the fact that a person lives or works under every roof.
The dynamic between landlord and renter presents a unique array of challenges that take time to learn, overcome, and master. Not to mention, these are often peoples’ homes and businesses that a landlord must maintain. The stakes are considerable. Even once you have experience, managing properties can still take massive amounts of time and effort.
The sheer difficulty of being a landlord is one reason many bright property investors hire property managers instead of managing their property. This gives them more time to find and pursue new investment opportunities or careers in other fields.
Real estate can be lots of fun and extremely rewarding, but also stressful and intense. If you love to learn new things and are eager to help others, chances are you’ll succeed in your real estate investments.